Fiscal gap: Expenses to exceed income by Rs1.1trillion says IMF report

The study also says that economic activity will continue to remain weak.

ISLAMABAD:

In what appears to be a close-to-reality assessment, the International Monetary Fund (IMF) has said that Pakistan’s expenses will exceed its income by Rs1,13 trillion this year- an amount which is Rs276 billion higher than what the government claims.

The Fund, in its latest World Economic and Financial report, also warns that economic activity will remain weak due to devastating floods and recent urban riots and there are entrenched expectations of high inflation.

However, Finance Ministry’s official spokesman was not available to comment on the latest IMF assessment that has put a question mark on economic indicators of the financial managers. Presently, Pakistan’s two top economic managers, Finance Minister Dr Abdul Hafeez Shaikh and Deputy Chairman Planning Commission Dr Nadeem ul Haque are on leave and in the United States on a private visit.

There has been inordinate delay in reforming the power sector and revival of Pakistan International Airlines and Pakistan Railways. These two economic managers are responsible for ensuring reforms in these areas.

According to the IMF report, this year Pakistan’s budget deficit is expected to remain at 5.3% of the total national output or Rs1,126 billion. The Finance Ministry has assessed that the budget deficit would not be more than 4% of the national output or Rs850 billion.

However, independent experts term the 4% projection “underestimate” that does not reflect natural budget deficit in the aftermath of the 18th Amendment in the constitution.

An $11.3 billion bailout package had been terminated in September after remaining suspended for 16 months due to Pakistan’s inability to deliver on budget deficit and revenue targets and failure to reform the power sector.

The IMF has said that Pakistan’s official reserves may fall to $12.9 billion from $14.8 billion of the last year. These reserves include $9 billion of IMF loans and $1 billion of Saudi Arabia and China ($500 million each) parked in the central bank.

The IMF has clubbed Pakistan with Libya and said these are the territories having the most difficult business environments.

It further has said that the Pakistani economy will grow at a rate of 3.8% against official estimates of 4.2%. Inflation is expected to remain at 14% for the consecutive fourth year. The growth in money in circulation has been estimated at 18.3% against last year’s level of 15.9%.

On the external front, the IMF has projected that exports of goods and services would remain even below last year’s level but the imports would further surge. It has estimated $30.2 billion exports, both goods and services and projected imports at $46.1 billion against last year’s imports of $43.3 billion.

The Fund has estimated the current account deficit-gap between external receipts and payments at $3.9 billion or 1.7% of the Gross Domestic Product.

The IMF’s assessment comes just a fortnight ahead of the IMF delegation that is arriving to assess the country’s economic health and to suggest remedial measures for putting the economy back on track. The IMF mission would hold talks under Article–IV of the Pak-IMF relationship agreement.

Published in The Express Tribune, October 27^th, 2011.